Britain avoids recession with faster than expected growth

LONDON (Reuters) - Britain skirted a "triple dip" recession by growing faster than expected in the first three months of the year, providing some cover for a government under fire over its austerity drive.

The Office for National Statistics said on Thursday that Britain's gross domestic product rose 0.3 percent in the first quarter, above forecasts for a 0.1 percent rise.

It shrank 0.3 percent quarter-on-quarter in late 2012, and another quarterly contraction would have put Britain into its third recession in less than five years.

The data will have come as relief to Prime Minister David Cameron's coalition government. It is banking on an economic upturn before the next general election but has been accused by critics of stifling growth with too much budget cutting.

The International Monetary Fund - previously supportive of Britain's approach to deficit reduction - has also suggested some cuts may need to be deferred given the weakness in demand.

Thursday's data was also released just days after ratings agency Fitch stripped Britain of its top-notch credit status.

Finance minister George Osborne said the GDP data was encouraging and showed his strategy was working. He promised to stay the course on fixing Britain's budget problems.

"We all know there are no easy answers to problems built up over many years, and I can't promise the road ahead will always be smooth, but by continuing to confront our problems head on, Britain is recovering and we are building an economy fit for the future," he said in a statement.

The opposition Labour Party said the figures were "lackluster" and showed the economy had only got back to where it was six months ago.

"David Cameron and George Osborne have now given us the slowest recovery for over 100 years," Ed Balls, Labour's economics spokesman, said in a statement, a complaint amplified in a new party political poster.

Sterling hit its highest level in two months against the dollar after the data and British government bond prices fell.

Britain's preliminary GDP figures are one of the first for a major advanced economy, and based mostly on estimated data. But it would be rare for a reading this high to be revised down into negative territory.

Year-on-year, the latest GDP reading was 0.6 percent higher, very low, but still the strongest rise since the end of 2011.

PITFALLS AHEAD

Nick Clegg, the deputy prime minister in the coalition government, said it was too early to declare an end to the country's economic crisis.

"I don't want anyone to think somehow we're out of the woods yet," he told a London radio station.

Osborne is sticking to his commitment to eliminate Britain's underlying budget deficit in five years. The stronger-than-expected GDP reading may help him when he tries to convince visiting economists from the IMF next month that Britain's economy is on track for recovery.

Analysts, however, warn of a broader problem of stagnation that has led some to warn that Britain risks a Japanese-style 'lost decade of near-zero growth.

Britain's GDP remains 2.6 percent below its peak in the first quarter of 2008 and even with Thursday's data, has stagnated for the past 18 months.

Rob Wood, an economist at Berenberg Bank, said a recovery appeared to be on the horizon but pitfalls lay ahead.

"The economy seems to have done a little better than the main surveys suggested but it is hardly a picture of rude health right now," he said. "We suspect there will be another couple of disappointing quarters to get through before the UK can see a return to sustainable growth."

The first-quarter rise in output was driven by a broad-based increase in services output, building on a strong January, with the motor trade particularly strong.

Industrial output was lifted by the biggest rise in the mining and quarrying sector since 2002, as some North Sea oil and gas fields came back on line after lengthy maintenance that depressed output in 2012.